It has become a common refrain: low-cost shale gas gives North American petrochemical producers a significant advantage.
A report from Standard & Poor’s Ratings Services out this week agreed with that assessment and said credit quality is likely to remain stable for most North American petrochemical companies. Still, the report suggested potential challenges — including U.S. and global plant expansions that will make the market more competitive — bear watching.
European companies face a stark cost disadvantage, according to the report, but most have been able to maintain credit stability through specialization and increased geographical diversity.
The boom in shale gas drilling has spurred huge investment in expanding capacity.
Demand growth: Natural gas price more than doubles from 2012 low
The Standard & Poor’s report quotes research firm IHS as saying the U.S. petrochemical industry plans to add 40 million metric tons of new capacity by 2018, with the possibility of adding another 45 million tons by 2030. Most of that increase is likely to be in the ethylene chain, according to the report.
IHS pegged investment through 2030 at $120 billion.
Other expansions are planned in the Middle East and Asia.
The Middle East has traditionally been the lowest-cost region for petrochemical producers, but low-cost shale gas has made North America almost as inexpensive, according to Standard & Poor’s.
Petrochemical producers here use natural gas as a feedstock, in addition to using it as a fuel. But many other parts of the world use oil as both a feedstock and a fuel.
Petrochemical manufacturers, led by Dow Chemical, have argued against allowing U.S. exports of liquefied natural gas, contending that it would raise prices of natural gas here and ultimately would lessen the advantage they have gained through the lower prices. A Department of Energy study on the subject found that exports wouldn’t raise natural gas prices here significantly.
The Standard & Poor’s report said the agency will watch several factors that it considers unlikely but could undermine North American producers’ cost advantage in coming years. They include:
- Environmental concerns that limit shale gas development or production.
- Increases in natural gas liquids exports that are significant enough to lead to meaningful price increases.
- The development of shale gas reserves in other regions.